Asset Allocation Views: Late‑Cycle Investing

There are ample signs of change in the wind: The Federal Reserve is raising short-term interest rates, and U.S. inflation is at target for the first time since 2012. The global trade order that has existed for decades is being disrupted. Several economic indicators are running hot even as the current U.S. expansion has begun its tenth year. Volatility is higher as some investors price a dire outcome while others are more sanguine, creating relative value opportunities.

All of this is leading to a tricky investment environment. While recession indicators are not flashing a red warning signal that a downturn is imminent, which would imply a retreat to a defensive position, they are flashing a yellow “caution” signal. This together with expectations for higher volatility, market dispersion and inflation risks suggest a regime of careful portfolio construction and opportunistic investments.

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https://www.pimco.co.uk/en-gb/insights/blog/asset-allocation-views-late-cycle-investing